The discount for U.S. crude futures versus Brent on Wednesday hit the widest in 11 years, as attacks on Middle Eastern oil infrastructure drove the global benchmark higher while rising supply in the U.S. set the stage for a jump in oil exports.
The U.S-Israeli war on Iran has thrown global oil markets into turmoil, driving crude and fuel prices to multi-year highs as a key trade route has mostly closed and some energy output in the Middle East is shut. The surge in Brent relative to U.S. crude futures creates an arbitrage opportunity for traders looking to fetch a profit by moving oil to higher-priced markets.
U.S. West Texas Intermediate crude traded at as much as a $12.05 a barrel discount to Brent during the session on Wednesday, its largest since March 2015.
Even with freight prices for an Aframax carrying up to 700,000 barrels of crude from the U.S. Gulf Coast to Europe jumping to about $6 million on Wednesday from $4.36 million before the war, the arbitrage remains open because the WTI/Brent spread is wide enough to offset the cost of freight, according to Georgios Sakellariou, chartering analyst at Signal Maritime.
“Today we saw more crude cargoes getting picked up from the U.S. Gulf Coast for loading in March to the start of April because of the widening WTI/Brent spread,” Sakellariou said, adding that they expect more ballast vessels will head to the U.S. in the coming days to load crude for Europe.
BRENT’S GAINS OUTPACE WTI
Brent surged by 3.8% on Wednesday after Iran threatened to hit Gulf energy targets and Iran’s huge South Pars gas field was struck in an attack. WTI rose by 0.1%.
“Brent is ripping on South Pars; I think infrastructure attacks will be the main driver of more Brent rallies rather than anything else, and that tends to be reflected in Brent over WTI,” said Neil Crosby, Sparta Commodities analyst.
The U.S.-Israeli war on Iran and Tehran’s attacks on Gulf neighbors have disrupted oil and natural gas exports from the Middle East and forced production stoppages.
“WTI looks extremely cheap in our arbs now and will go nicely to Europe,” Crosby said. “Prices today suggest the flow should be maxed,” he said, adding that U.S. crude loadings for export will likely rise in the next few weeks, given the current WTI/Brent spread.
Weighing on WTI, countries in the International Energy Agency agreed to release 400 million barrels of crude from reserves in an effort to tame prices, with the U.S. set to release 172 million barrels from the SPR, and that is putting pressure on WTI, said Rohit Rathod, a senior analyst at Vortexa.
Meanwhile, U.S. crude stocks at Cushing, Oklahoma, the delivery and pricing point for West Texas Intermediate crude futures on the New York Mercantile Exchange, rose last week to 27.52 million barrels, their highest since August 2024, the Energy Information Administration said on Wednesday. This build in Cushing inventory along with the SPR release is suppressing WTI, a trader said.
Growing demand to export crude from the U.S., which boosts freight prices, could close the arbitrage window as the shipping economics become unworkable, capping how much crude leaves the U.S.
(Reporting by Georgina McCartney in Houston and Siddharth Cavale in New York; Editing by David Gregorio)